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      NASDAQ fear collapsing

      The VXN has not closed this low since early 2022. The most recent equity vol reset has been massive. Our take remains intact, use attractively priced (cheap vol) options to play directional bets...Soon the long vol trade itself will become attractive, but more on that next week.

      NASDAQ fear collapsing
      Source: Refinitiv
      Breaking up according to seasonality

      Is this the "ultimate" squeeze chart. Seasonality just about to kick in...

      Breaking up according to seasonality
      Source: Equity Clock
      Remember economic surprises?

      Citi US economic surprises index has basically been printing new recent highs on a daily basis since mid January. You don't trade SPX on the back of the CSI, but that gap still looks very wide...

      Remember economic surprises?
      Source: Refinitiv
      Fading (big tech) fear

      VXN and Apple "VIX" (VXAPL) in full implosion mode, both trading at/below lowest levels in a very long time. Using options for directional tech plays isn't overly expensive.

      Fading (big tech) fear
      Source: Refinitiv
      Oil - it was just a short cover

      Note the sharp move higher in the red line. MPAS writes: "CL OI off almost -36k in last 2 sessions and mostly from front end, suspect managed money short position built in last 2 weeks took the hit...."

      Oil - it was just a short cover
      Source: MPAS
      Underestimating the risk?

      TS Lombard's Steve Blitz: "...when recession hits, the damage to spending may be a lot more than most expect and turn the recession into a deeper one than anticipated. There is a still a strong contingent believing no recession at all, but there were a lot of very smart people in spring 2008 who were still arguing no recession was underway. Mid-year recession, Fed begins to cut once unemployment > 4%, and sentiment suggests risk is a worse recession not a milder one. Not yet my call, but that's the risk."

      Underestimating the risk?
      Source: TS Lombard
      Oil - the chase

      On March 21 we pointed out the reason why oil could squeeze (hint CTAs, more here). The CTA community has managed getting caught wrong in another short term trade going against them. Trend followers continue struggling and behave like short gamma strategies, but they do not get to enjoy the theta checks...As Goldman's Nocerino points out: there is much more to buy should oil squeeze even further.

      Oil - the chase
      Source: GS
      Stubborn credit stress

      While VIX has given back much of the recent gains, the CDX IG remains at elevated levels post the latest surge. Note the difference in trajectories over the past months.

      Stubborn credit stress
      Source: Refinitiv
      Skew stays elevated

      Skew, measured by the SDEX here, is not high on a historical basis, but is holding up remarkably well post the latest surge. Looks like the crowd is still in need to pay up for downside protection.

      Skew stays elevated
      Source: Refinitiv
      Rates matter

      Jefferies writes: "...the relationship between S&P500 forward PE and US 10Y bond yield has been tight knit since 2022, with an R squared of 53%." Don't forget to look at bond volatility as well. Second chart shows SPX vs MOVE (inverted).

      Rates matter
      Source: Jefferies
      Rates matter
      Source: Refinitiv
      0DTE puts are the new 0DTE calls

      Scott Rubner writes: "Month to date, more daily puts were trading than calls." Somebody needs to figure out how to hedge that downside when things get dynamic to the downside...

      0DTE puts are the new 0DTE calls
      Source: GS
      Watching the MOVE closely

      VIX down from recent "panic" highs, but MOVE refuses giving back any of the gains. Watch bond volatility closely here as it is a big part of the current macro puzzle.

      Watching the MOVE closely
      Source: Refinitiv
      0DTE - buy to sell

      Great charts via BofA's great derivatives team showing how people start the day with paying up for 0DTE options (lifting offers) only to sell these as the day progresses, hitting bids. The trend can be seen in both calls and puts, with puts being even more pronounced.

      Zero sum game until something goes wrong...?

      0DTE - buy to sell
      Source: BofA
      Very little "monetization"

      We have covered the rise in SPX and the rise in SKEW extensively over past weeks (here). When both rise you should watch closely as it shows the crowd is paying up for downside protection (on a relative volatility basis)...because they need it. This protection is usually monetized when markets move lower. This time we have seen very little of that "monetization"...

      Very little "monetization"
      Source: Refinitiv
      They don't come cheap

      0DTE options trade with a huge volatility premium. BofA's chart showing the volatility smile "with the call side trading at more elevated implied vols than longer-dated tenors".

      They don't come cheap
      Source: BofA
      Bitcoin has been the leader

      It led things on the way up. Does it lead to the downside? Short term 1 day 5 min chart showing BTC and SPX.

      Bitcoin has been the leader
      Source: Refinitiv
      BTC tracking the 17/18 cycle

      BTC price action generally tracks the 2017/18 cycle, but trading volumes are low, and crypto company credit risks remain. Morgan Stanley's ETH PAVA speculative indicator has reached an extreme high.

      BTC tracking the 17/18 cycle
      Source: Morgan Stanley
      A crypto doughnut

      Early in the month, and now we have a rally...but could crypto funding in the month of January actually register a big fat zero? Like some (many) ECM bonuses...

      A crypto doughnut
      Source: JPM
      Bitcoin volatility

      More of the spot up, vol up behavior for forgotten Bitcoin. Second chart shows the 35 delta skew, also moving higher, as upside "chasing" makes a come back.

      Bitcoin volatility
      Source: Amberdata
      Bitcoin volatility
      Source: Amberdata
      Bitcoin bull

      Bitcoin is extending the most recent surge. We stick with our upside call spreads logic from Monday (here). Make sure to roll into higher strikes dynamically in order to capture max optionality. Note the 200 day coming in slightly higher. We have not traded above it since Jan 2022. 20k is the "psychological" level to watch.

      Bitcoin bull
      Source: Refinitiv
      Got crypto?

      Long crypto is unique these days. That is part of the reason we continue to feel comfortable with our latest squeeze BTC logic (here). Charts show JPM's position proxy based on open interest in CME Bitcoin and Ethereum futures contracts.

      Got crypto?
      Source: JPM
      Got crypto?
      Source: JPM
      Bitcoin - will you ever attract interest?

      Let's see if the latest mini move higher reignites some "institutional" interest. One things is sure, the trend is not overly exciting...making the squeeze even more exciting.

      Bitcoin - will you ever attract interest?
      Source: JPM
      Bitcoin's comeback, but...

      Bitcoin is trading above the 100 day moving average as of writing. We have not seen that since the early November crash. On Monday we outlined our short term BTC squeeze logic and we wrote: "One way to play a possible break out move in BTC is via shorter dated call spreads." This has worked well, but don't forget to roll into higher strikes in order to max out the "greeks". 18500 is a first bigger resistance. Booking some profits and rolling into higher strikes is a strategy we like. Note the 200 day still way higher and the negative trend coming in slightly higher.

      Bitcoin's comeback, but...
      Source: Refinitiv
      You know things are squeezy when...

      ...even BTC is moving higher. BTC looks to be closing above the range highs. Second chart shows the short term chart moving in tandem with NASDAQ.

      You know things are squeezy when...
      Source: Refinitiv
      You know things are squeezy when...
      Source: Refinitiv
      Bitcoin optionality

      Bitcoin volatility has come down sharply. One way to play a possible break out move in BTC is via shorter dated call spreads. Skew is not dirt cheap, but given the implosion in vols, playing directional bets in BTC looks relatively attractive.

      Bitcoin optionality
      Source: Amberdata
      Bitcoin optionality
      Source: Amberdata
      Bitcoin - is that a break out attempt?

      BTC is currently pushing higher, trading at 17200 as of writing. BTC has been stuck inside a massively boring range. A close here or higher and we could be seeing some upside momentum kick in.

      Bitcoin - is that a break out attempt?
      Source: Refinitiv
      Why to still believe in crypto

      Bernstein highlights 5 arguments on why one still should believe in crypto despite the current bear cycle and FTX-like catastrophes that have weighed on investor confidence.

      1. With maturing internet adoption, crypto still has decades of application-led growth. Crypto only touches 5% of total internet users

      2. Crypto's survival instinct is that every crypto winter (in 2014 and 2018 before) is as brutal, but the industry has always come back

      3. Ethereum & its ecosystem represents this application-led growth. Gautam believes that value within crypto will migrate from the speculative crypto assets to more utility and application-driven ecosystems such as Ethereum and its related Layer-2 platforms

      4. FTX contagion effects are isolated to select players with FTX only 10% of the global trading volumes, and have strengthened the blockchain financial economy

      5. Regulation is coming but adds legitimacy to the space for institutions to participate and will be a net positive in the long run in our view. 

      Why to still believe in crypto
      Source: Bernstein